Assessment and Training-Workshop Offered to MABS Participating Banks

Assessment and Training-Workshop Offered toAssessment and Training-Workshop Offered toMABS Participating BanksMABS Participating Banks

Management and RecoveryManagement and Recoveryin a Time of Disasterin a Time of Disaster

Training ObjectivesTraining Objectives

•Assist participating rural banks to assess impact of natural disasters on their operations

•Present options/ measures to manage possible cash flow demands and liquidity risks

•Present options/ measures to ease the burden posed by the loan on existing clients, while continuously pursuing loan recovery to protect portfolio quality and growth

Training-Workshop AgendaTraining-Workshop Agenda

I. Workshop 1 – Impact of Disaster on Banking Operations – Liquidity & Delinquency Management II. Framework for Disaster and Risk ManagementIII. Loan portfolio management and recoveryIV. Workshop 2 – Options for Managing RisksV. Next Steps

Workshop 1 Workshop 1

Instructions:

1. Using workshop handout 1, discuss with your group your observations on the impact of typhoon Reming and measures which your bank has put in place.2. After completing the workshop handout, write the group output in a manila paper. 3. A few groups may be asked to present their output to the big group.

Important Considerations When Choosing Disaster Response/Options

Liquidity

IncomePortfolio Quality

(PAR)

RISKS

A Framework for Disaster Risk Management A Framework for Disaster Risk Management

1. Portfolio Quality2. Liquidity3. Property4. Staff

1. Property2. Business/Farm3. Lives4. Health

CLIENTS RISKS

BANKRISKS

Repayment

Savings W/drawal

EMERGENCY RESPONSE AND RECOVERY TOOLS

A Framework for Disaster Risk Management A Framework for Disaster Risk Management

DISASTERS

Banks Banks On LiquidityOn Liquidity1. Temporary decline in inflows from affected clients2. Temporary increase in outflows to affected clientsOn Portfolio QualityOn Portfolio Quality3. Medium-term decline in repayment rates and/or new loan demand

ClientsClients1. Temporary inability to earn income2. Increased basic expenditures3. Damage to or destruction of income-generating assets4. Damage to or destruction

of household assets

IMPACT

Emergency Emergency ResponsesResponses1. Retrieve/salvage whatever assets left2. Rely on relief assistance from govt./other agencies3. Withdraw from their 3. Withdraw from their savingssavings4. Loan restructuring/New 4. Loan restructuring/New loan/ Emergency loanloan/ Emergency loan

Emergency Emergency ResponsesResponses1. Flexible savings policy1. Flexible savings policy2. Maximize available 2. Maximize available rediscounting/ credit linesrediscounting/ credit lines3. Moratorium on lending3. Moratorium on lending4. Loan restructuring/ 4. Loan restructuring/ RefinancingRefinancing

Impact of Disaster to Affected Clients & BanksImpact of Disaster to Affected Clients & Banks

Concerns/Issues

CLIENT RURAL BANK

Liquidity • Some clients save less or stop savings deposits

• Some clients withdraw savings

• Some clients miss paying their loans

•Some clients will request for new loans or emergency loans

• Possible liquidity shortfall

• Savings as a form of group guarantee is diminished

•Group guarantee mechanism may lose its affectivity

Portfolio at Risk: Loan recovery & management

• Some clients miss paying their loans

• Some clients will request for new loans or emergency loans

• Reduced collection increases PAR

• Higher loan loss provisioning increases cost

• Pressure on bank’s liquidity position

• May affect bank’s profitability

• Liquidity management measures

Draw on available credit lines

Request for flexible conditions on existing loans from fund providers

Provide incentives to bigger depositors

Disaster Response Measures/ Options

• Modified Policies and Procedures

Imposing a moratorium on lending

Restructuring loan

Refinancing

Write-off


• Product Modifications

Withdrawal of compulsory savings

Provide emergency loans

Shift from group-based liability to individual liability during a disaster

• Non-Financial Emergency Responses

Training on Risk/Disaster awareness

Information Dissemination

Distribution of emergency/relief supplies


• Conduct Portfolio Review and on-site field validation (use MABS Post-Disaster Survey Tool) Current vs. Delinquent loan account

New vs. Repeat loans

Determine risk exposure against savings balance

Ascertain damage to business and household and whole community

Ascertain client’s ability to re-establish business

Ascertain other sources of income

Basic Consideration Before Choosing Options

• Assess liquidity position

• Check readiness of MIS

Can existing MIS handle/capture nuances of the various response measures/options

Basic Consideration Before Choosing Options

Instructions:

1. Using workshop handout 2, discuss in your group what are the disaster response measures/options that you think are applicable to the situations of your clients. Also provide what criteria or considerations you will need to use in each of the options.

Workshop 2

Disaster Response Measure/OptionDisaster Response Measure/Option

Response Measure

Considerations Possible Impact

I. Moratorium on Lending

a) General – New & Repeat Loans?

b) Selective – New Loans only?

• Staff will require training to implement this procedure particularly on how and when to inform clients to ensure that it does not create a crisis of confidence

• Should define the length of time the policy is implemented

• May result to a temporary excess of liquidity;

• Or may help abate a potential liquidity problem

• If not done properly, may result to a crisis of confidence

• May affect bank’s ability to generate income

Modification of Policies and Procedures

Disaster Response Measures/OptionsDisaster Response Measures/Options

Response Measure


II. Restructure Loans -

Option 1: Bank continues to collect interest payments while principal repayments are restructured

• MIS must be able to track interest payments without principal payments

• MIS must be capable of altering loan terms

• Liquidity projections of the bank must be altered

• Staff training to assess clients’ situation, whether they meet selection criteria and how to communicate procedure to them

• Interest payments minimizes impact of delayed payments to the banks liquidity

Response Measure


II. Restructure Loans –

Option 2: Bank extends loan term by, say, 1 or 2 months, but charges corresponding interest for period of extension

• Assess bank’s liquidity situation



• This puts greater strain on liquidity as no payments is expected for a period of time

• This however helps to reduce losses as full interest payments are made

• Allows clients sufficient time before payments are required


Response Measure


II. Restructure Loans –

Option 3: Bank extends the term of the loan by, say, 1 to 2 months with no corresponding interest for the period of extension



• This strategy foregoes potential interest income to compensate for possible losses

• Allows severely affected clients time before payments are required

• May affect bank’s profitability


Response Measure


III. Refinancing

Providing an additional loan to an existing good client to assist in the full recovery of his/ her business

• Enough liquidity to service additional loan requirements

• MIS must be capable of capturing additional loan to client

• Staff training to assess clients’ situation, evaluate whether they meet selection criteria, and how to communicate procedure to them

• Bank is able to keep its good clients

• Able to speed up client’s business recovery, and repayment capacity


Response Measure


IV. Write-off • Candidates for write off are loan accounts with PAR more than 90 days

• Bank has adequate loan loss reserve

• A special unit or dedicated account officers are in place to pursue remedial management measures

• Flexibility to negotiate with clients on various ways to settle delinquent account

• Written off accounts when collected are realized as other income

• BIR recognizes written-off account as an expense; hence lesser income tax for the bank

• Instead of following-up on non-productive accounts, AOs can instead spend such time to generate new loans



Savings Context What to do

Compulsory Savings

• In normal times, used as a substitute collateral, hence, savings is tied to client’s loan•In times of disaster, clients should be allowed access to address emergency needs

Make compulsory savings semi-flexible (allow a percentage of the savings balance to be withdrawn by the client)Caution: Don’t ask clients to return all amounts withdrawn before giving them another loan

Voluntary Savings

• Used for building financial assets that the client can access anytime•One of the best coping mechanisms for clients during times of disasters

Design an “emergency kitty” savings product that clients could regularly save for in affordable amounts; with or without restrictions on withdrawals (find out what clients prefer)Information dissemination to microfinance clients on existing regular savings products


Response Measure


I. Withdrawal of Compulsory Savings

• MIS must be capable of tracking extraordinary withdrawals

• Assess liquidity position; for cash-strapped banks, consider alternative sources of funds to shore up liquidity

• Staff training to assess clients’ situation, and how to communicate procedure to them

• Will have an impact on the banks liquidity situation

• However, this will enable the bank to earn loyalty of its clients, and may encourage more savings especially if CS is made semi-flexible

Product Modification

Overview of Disaster Response Overview of Disaster Response MeasuresMeasures

Response Measure


II. Provide Emergency Loans

• MIS must be capable of tracking multiple loans of different products from one client


• Will require additional sources of funds since additional disbursements are to be made before the projected payment of outstanding loans

• This loan will assist clients in good standing but will be a burden to those with history of missed payments

Response Measure


III. Shift from group-based liability to individual liability, as interim or permanent measure

• For members of centers that demonstrate varying levels of repayment capacity

• May require designing of a transition product

• MIS must be capable of handling the change to individual loans

• The bank should be prepared to handle a substantial increase in transaction flow


• Impact on liquidity depends greatly on clients’ response

• May encourage prompt repayments from clients who are able to pay, but also removes the guarantee for those who are not

• May encourage payments and increase loan disbursements


Overview of Disaster Response Overview of Disaster Response MeasuresMeasures

Non-Financial Emergency ResponsesResponse Measure


1. Relief goods & supplies

• Loan portfolio must be under control and liquidity position adequate

• Staff capability to undertake additional tasks

• Additional funds to cover costs of these services

• Accounting system must be able to track costs separately

• Networking and coordinating with relief goods providers

• Getting involved ensures the survival of the bank during and after the crisis;

• Gain “pogi” points from grateful clients, loyalty, bank image

• CAUTION: Clients who do not receive sufficient explanation as to why, how and for how long these services are offered could start to see the bank as a relief agency and fail to make future payments

LESSONS LEARNEDLESSONS LEARNED

Some LONG TERM CONSIDERATIONS for Disaster Preparedness

1.Prepare for natural disasters before they occur: have a contingency plan ready

2.Continuous assessment of the institution’s existing capacity: human, MIS, liquidity

3.Diversify risks: geographically, by business activities

And Future Plan of Action to Ensure Preparedness

LESSONS LEARNEDLESSONS LEARNED

And Future Plan of Action to Ensure Preparedness

LESSONS LEARNED

Assessment and Training-Workshop Offered to MABS Participating Banks

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